Dollar reserves flat as of end-Aug, says BSP

The country’s dollar reserves held up relatively well in August, official data showed Monday, testament to the Philippine peso’s stability and monetary authorities’ ability to resist the temptation to intervene in markets.

In a statement on Monday, the Bangko Sentral ng Pilipinas (BSP) reported that gross international reserves (GIR) at the end of August was flat from the same period last year.

Reserves held by the central bank serve as a buffer for external shocks that may destabilize the domestic economy.

At the end of last month, the country’s GIR stood at $80.26 billion, slightly lower than July’s $80.3 billion.

The BSP attributed the decline to foreign debt payments by the national government.

The GIR was enough to pay for imports of goods and services that the economy would need for 10 and a half months, the BSP said.

It was also enough to cover 6.4 times the country’s external debt.

The stability in the country’s reserves came despite volatility in financial markets. Asia-Pacific currencies in the region tumbled in the last week of August following China’s decision to devalue the yuan, prompting other central banks to follow suit.

In the turmoil, the peso outperformed its regional counterparts. During the height of the volatility, the peso was down by over 4 percent from its level at the start of the year. The Thai baht, meanwhile, was down 8.01 percent, Singapore’s dollar by 6.23 percent, and Malaysia’s ringgit by 17.57 percent.

Bank of the Philippine Islands (BPI) lead economist Emilio Neri Jr. said the modest decline in reserves in August showed the peso’s stability was real.

“If your reserves are intact and not drained significantly, portfolio investors will realize how stable your market really is,” Neri said. “If you temper foreign exchange movements, that can backfire,” he said.

Part of the reason why reserves are kept is to ensure the availability of foreign exchange in an economy.

Foreign currencies are needed to ensure businesses and the government are able to transact with the rest of the world.

These transactions include foreign debt payments and the importation of food, fuel and other commodities.

If the country’s supply of dollars falls short, the BSP can opt to release more of reserves to ensure the economy has what it needs.

This keeps businesses and the government from buying dollars from overseas, which will erode the peso’s value. Paolo G. Montecillo